35-ICT Mentorship Core Content - Month 4 - Liquidity Pools

Last modified by Drunk Monkey on 2022-09-12 06:35
1 00:00:39,030 --> 00:00:51,540 ICT: teachings from the ICT mentorship or another December when teaching reinforcing liquidity pools when to anticipate rates, or liquidity is the open
2 00:00:51,570 --> 00:01:00,690 interest of buyers and sellers in the market, and can be further defined by those entities at or near specific price levels. Now, if we're looking at this
3 00:01:00,720 --> 00:01:10,140 graphic depiction on the left hand side, the gray area represents the current price that you're looking at for your specific asset class. And we'll say for
4 00:01:10,140 --> 00:01:20,850 instance, say this is the dollar index that we're looking at. If the current price is the market price, our understanding is that there's going to always be
5 00:01:20,940 --> 00:01:33,240 a participation in the marketplace by buyers and sellers. We don't always know why the interest would be on the form of buying or selling. We're not really so
6 00:01:33,240 --> 00:01:43,410 concerned about what other traders are trying to do with their trades. But we are interested in knowing where their interest may reside in new pending orders.
7 00:01:44,070 --> 00:01:57,420 New pending orders are in the form of buy stops above the marketplace, or usually more refined Smart Money traders will selling above the market price.
8 00:01:58,110 --> 00:02:10,380 Below the market price. Typically you'll see sellers and usually it's the smart money that usually wants to buy below market price. Usually it's the retail
9 00:02:10,380 --> 00:02:24,720 trader that is so reactive to price, they're usually buying and selling at market price. The liquidity that we seek as a smart money minded trader is that
10 00:02:24,720 --> 00:02:38,520 we want to sell to the buyers above us or above the market price. So we want to be a seller above market price. We want to buy below the market price from
11 00:02:38,550 --> 00:02:48,030 sellers that are willing to sell below the market price. And by having this understood, you're always going to be selling at a premium and buying at a
12 00:02:48,030 --> 00:02:59,850 discount. Now, this is going to be diametrically opposed to what retail is typically taught. They're usually taught to buy on a breakout, or buy on some
13 00:02:59,850 --> 00:03:13,140 continuation pattern like a bull flag or a wage of some kind. What we require is the market pullback into a level of discount, and that requires a bit of
14 00:03:13,170 --> 00:03:26,250 discipline. And most traders, especially in the retail universe, lack discipline in terms of patients. When we view price, we look at where the market is
15 00:03:26,280 --> 00:03:38,730 presently. And this is the market price. If we're looking at a bearish market, if the undertones of the marketplace suggest that the dollar is bearish, what we
16 00:03:38,730 --> 00:03:49,320 will be willing to do is we want to sell above old highs. Whereas the buyers, the buyers that would view that move above an old high, they would see that as a
17 00:03:49,320 --> 00:03:58,500 bullish breakout. So they're going to be willing buyers up there. So we know with price prints at an old high or just above an old high there's going to be
18 00:03:58,500 --> 00:04:08,100 buyers that want to accumulate new Long's up there or they have shorts on and the market has repriced above an old high. And that's exactly where their stop
19 00:04:08,100 --> 00:04:19,050 loss for protective short position would be residing. In other words, they were protected by stop Oh, hi. We could sell at that moment. By doing that, what
20 00:04:19,050 --> 00:04:34,680 we're doing is we're actually selling short in a pool of liquidity of buyers. Above old highs, there's a poll or a collection of orders that traders will
21 00:04:35,040 --> 00:04:43,980 build up around now. 90% of retail traders aren't even aware the other traders are doing what they're doing. Okay, they're just thinking myopically about
22 00:04:43,980 --> 00:04:54,360 themselves. So what we do is is we we go into the marketplace and we role play by looking at the charts and say, Okay, if I were short right now, where would
23 00:04:54,360 --> 00:05:05,610 my protective buy stop would be? If I was long right now, where would my protective stop sell stock B. By doing that, you can get a good read on where
24 00:05:05,670 --> 00:05:14,730 other traders would have their stop loss orders above and below the marketplace. If we go back to our an example, and we suppose for a moment that the dollar
25 00:05:14,730 --> 00:05:23,190 index would be bearish, and I'm not saying that's the case now, but just for example, purposes only, we're going to say the asset that we're looking at is
26 00:05:23,190 --> 00:05:32,640 the dollar index, and we believe it's bearish. We could wait for a rally to go above an old high and look to go short there.
27 00:05:33,900 --> 00:05:42,720 With the expectation that that move above an old high would be a false breakout. And in the market would reprice going lower to some lower level liquidity
28 00:05:42,720 --> 00:05:53,100 reference point in terms of maybe another old low that it would run below, or a bullish order block, or it could close in a fair value gap. Let's say for
29 00:05:53,100 --> 00:06:02,850 instance, if the dollar was bullish, we could look below the market price and see that there would be sellers want to break out looking for a move lower
30 00:06:02,850 --> 00:06:16,170 because most retail traders are incorrect. And that repricing would offer liquidity the market price and below we want to be a buyer. So we're gonna try
31 00:06:16,170 --> 00:06:26,040 to buy at a discount. So we are trying to pair our buy orders with those willing participants that want to sell on a sell stop. They're either selling on a stop
32 00:06:26,100 --> 00:06:36,960 in a form of a breakout looking to make a move lower, or they have a long on, and they're protecting their long position with a protective cell stop. So when
33 00:06:36,960 --> 00:06:46,650 the market trades below an old low, we're going to view that as an opportunity to buy up the sell side liquidity to establish a long position and wait for a
34 00:06:46,650 --> 00:06:55,710 repricing for the market to trade above an old high. So we can unload deposition, or trade up into a bearish order block take profits or trade up into
35 00:06:55,740 --> 00:07:07,920 a fair value gap or a liquidity void. By viewing the marketplace in this market efficiency paradigm that I've been teaching you, it allows you to see the
36 00:07:07,920 --> 00:07:20,310 internals of the marketplace. And you don't need to see a order book. You don't need to see a suppose Id ladder or anything like that depth of market, you don't
37 00:07:20,310 --> 00:07:27,360 need any of that stuff. And you can actually see where the orders would be residing with common sense and just visual reference to what the charts are
38 00:07:27,360 --> 00:07:36,030 showing old highs and old lows. The trick is knowing what the underlying pinnings of the market is, is the market predisposed to go higher? Or is it
39 00:07:36,030 --> 00:07:48,060 predisposed to go lower? Once you do that higher timeframe work that leads you to be bullish or bearish on a specific asset class then it's not hard to sit in
40 00:07:48,060 --> 00:07:55,230 Wait, well, it shouldn't be hard to say it like that. It will be hard for you initially because you're wanting to get in there and do something right now. But
41 00:07:55,230 --> 00:08:06,540 when the market is predisposed to go higher, we wait for the market to go down below an old low to knock out those weak Long's or bullish traders that Trailer
42 00:08:06,540 --> 00:08:17,460 Stop Loss off too tight, the market will correct and go lower, take out an old low that accumulation of sell side liquidity or knocking out the sell stops
43 00:08:17,460 --> 00:08:27,540 below the marketplace. It injects the marketplace with willing participants to sell the marketplace so engineers liquidity into market so if there's a rush to
44 00:08:27,540 --> 00:08:38,640 sell the smart money and us we look to accumulate that rush of selling interest and will accumulate those orders really quick and then we'll look for mood to go
45 00:08:38,640 --> 00:08:46,800 higher in this DOPS is said for when the market is predisposed to go lower, we wait for the market to trade above and on high that by side liquidity is
46 00:08:46,800 --> 00:08:55,110 injected in the marketplace as a rush of buy orders at the market and smart money will go and accumulate and sell into that with the expectation that false
47 00:08:55,170 --> 00:09:06,750 break above an old high while the market underlying bearish we are going to sell short in the form of a run on liquidity or a liquidity pool. So what does this
48 00:09:06,750 --> 00:09:18,690 look like graphically? Okay, well we have here is a run on a bullish liquidity Pool. And by definition what that is is the low those under the current market
49 00:09:18,690 --> 00:09:29,850 price will typically have a trailed Sell Stop under it for long traders. When sell stops for traders who wish to trade on a breakout lower in price for a
50 00:09:29,850 --> 00:09:40,770 short position also reside below old lows. Validation of this setup or condition is when the low was violated or price moves below the recent low and the sell
51 00:09:40,770 --> 00:09:50,760 stops become market orders to sell at market. This inject sell side liquidity in the marketplace and typically this is paired up with Smart Money buyers entry
52 00:09:50,760 --> 00:10:01,560 techniques using this concept when underlying market is bullish. Before price trades under the recent low. You're going to place a buy limit order just below
53 00:10:01,560 --> 00:10:12,150 or at the recent low, you're buying the cell stops like a bank trader or any other smart money entity would. Defining the risk with this setup, this is where
54 00:10:12,150 --> 00:10:13,380 your work is going to be,
55 00:10:14,969 --> 00:10:24,059 you're going to need to see the low, identify how far it could reasonably trade below it. And that's going to be taught a lot of detail was going to be taught
56 00:10:24,059 --> 00:10:33,719 to you across the next coming months, because there's going to be things we look at that haven't been taught yet. But for exercise purposes now, and to observe
57 00:10:33,719 --> 00:10:42,539 and past examples, in hindsight in your in your charts, the low that you're trying to buy under, okay, you're going to expect or anticipate on a lower
58 00:10:42,539 --> 00:10:55,499 timeframe chart like a 15 or 30 minute chart, you can expect a 10 to 20 Pip sweep below the old low. A 30 to 50 pip stop is ideal if your entry is under the
59 00:10:55,499 --> 00:11:05,999 low and not above it. Because you're generally if you're trying to get ahead of the move, trying to buy above the low or at the low, you're really probably just
60 00:11:05,999 --> 00:11:14,909 fearful you're going to miss the entry. It's better to wait for the market to trade under that low. And once it trades on the near 1020 pips, that's a really
61 00:11:14,909 --> 00:11:26,039 good ideal entry point. Because if you use a 30 to 50 pip stop, while entering below, significantly below the low by 10 or 20 pips below the low. If you use a
62 00:11:26,039 --> 00:11:34,469 30 pip stop at that point, it's going to take a real significant move to knock you out. And here's the thing, if it starts moving beyond 25 pips, I think is a
63 00:11:34,469 --> 00:11:45,359 fair assessment. Below the low, it's probably not just a stop run, you're probably looking at a much further decline. So when do we anticipate these stop
64 00:11:45,359 --> 00:11:54,839 raids? Well, in this case, here, this market was on their line bullish. It was the Kiwi just so you know, to Kiwi dollar trade. And it was an old low there.
65 00:11:55,049 --> 00:12:04,529 And the market had a liquidity pool resting below the old low market trades below that old low and accumulates all those sell stops. Now while it's doing
66 00:12:04,529 --> 00:12:14,609 that, okay, it's going to look to offset those new Long's by Smart Money above old highs, you can see the equal highs over to the left, or I've highlighted it
67 00:12:14,639 --> 00:12:24,689 and draw that out to the right side of the chart, you can see where profit taken with buy stops when they're rated. And that's the other contrary liquidity pool
68 00:12:24,869 --> 00:12:38,159 or where the BizStats would be resting. So you're accumulating, sell stops and offloading them to buy stops. You're accumulating the sell side liquidity for
69 00:12:38,159 --> 00:12:49,139 Long's and you're distributing your Long's to the buy side liquidity. All you're doing is the same role as a market maker and a liquidity provider. Remember,
70 00:12:49,169 --> 00:12:57,059 it's that market efficiency paradigm just put into mechanics and operation. So let's take a look at the charts themselves. And then we'll go over a couple of
71 00:12:57,059 --> 00:13:07,049 examples. Okay, folks, we're looking at the Canadian dollar, US CAD pair. On the left hand side, we have a daily chart. And I want you to take a look at the
72 00:13:07,049 --> 00:13:18,029 bodies of these candles over here. And we're going to look for a sweep below the bodies of those candles. Okay, there's some stocks below these lows, and we're
73 00:13:18,029 --> 00:13:34,739 using this previous day's candle low and that low comes in at 131 Oh to 131 go to. And that's what that level is here. And we transpose that level that we're
74 00:13:34,739 --> 00:13:48,329 on to our 15 minute timeframe 3102. And we see on this day here, price trades down below it. Okay, and choose a willingness to rally away and news is coming
75 00:13:48,329 --> 00:14:00,209 out. And there's going to be a interest rate announcement on this particular day. And when we're looking for a run below this low here, okay, so now we have
76 00:14:00,209 --> 00:14:10,649 a low and we now have another lower low right here that we're finding on a daily time on an intraday basis. So we're gonna be looking for a run below
77 00:14:10,649 --> 00:14:27,929 130 95 130 95. So if we see a movement down to 130 85 or 130 75, we could be a buyer so we can do a buy at 130 90 or we're going to say that's our entry point.
78 00:14:29,939 --> 00:14:38,519 And price trades. After watching a little bit he trades up higher. We're waiting we're not considering anything above that level. We're looking for a move down
79 00:14:38,519 --> 00:14:52,709 below it. Price trades right down below here. And this candles low comes in at 130 83. So the stop I'm sorry the limit order would have put you in long at
80 00:14:52,709 --> 00:15:09,209 130 90 and the actual low come is in at 130 83. So it's not even seven pips. It's small is seven pips, drawdown.
81 00:15:11,490 --> 00:15:22,680 And price immediately shows a willingness to want to rally up and we're looking for a run up into this swing high where there would be a contrary liquidity pool
82 00:15:22,710 --> 00:15:48,930 whereby stocks will be resting. So we're gonna be looking for 133 60 as a way to unload and price rallies up. There's your one to 133 60 They're right here. So
83 00:15:48,930 --> 00:16:03,420 133 60 occurs right here, on this candle right here, it still goes a little bit higher, but you can actually see it unfold here as well on the daily. So that's
84 00:16:03,420 --> 00:16:26,070 a liquidity pool example on the dollar CAD pair, really nice example of low risk entry, very big payout up to here. So let's go on to another example. Okay,
85 00:16:26,070 --> 00:16:35,370 we're looking at the dollar index. You see the dollar has been on a bullish move here. And we probably call our jets for the week going into Friday as is
86 00:16:35,370 --> 00:16:48,330 Thursday's trading. And this is Friday's setup here. So price creates a low in here intraday and we have some buy stops above this high here and we have some
87 00:16:48,330 --> 00:17:04,140 biceps above this short term high here as well price trades down clears out the sell stops on the marketplace here. And your entry could have been 21 or 285 or
88 00:17:04,140 --> 00:17:19,530 one or two at the low comes in at one or 269 So you definitely want to have a easy Phil on that regards to spread so below this low you'd be long and we're
89 00:17:19,530 --> 00:17:29,370 gonna be looking for buy stops above these equal highs and then buy stops above here to unload that long position that would be accumulated below this low price
90 00:17:29,370 --> 00:17:41,400 rallies up small little retracement could have been scary for you here but you're looking for a rejection away. Price taps that high just fell short of it
91 00:17:42,660 --> 00:17:54,240 explodes up through takes the buy stops. Small little retracement again runs right up above hits the buy stops. This is what you see on Friday. And we talked
92 00:17:54,240 --> 00:18:02,010 about this in the market before it actually happened running up here and buying taking out these buy stops and then seeking the sell stops below these
93 00:18:02,010 --> 00:18:11,400 relatively equal lows. And you see that example as well. So because the market was in a trending environment prior to Friday and Friday being the end of the
94 00:18:11,400 --> 00:18:19,890 week, we're going to be looking for the market to want to take something off the table. And we're going to have a choppy sideways day. And that was why we
95 00:18:19,890 --> 00:18:27,330 weren't expecting a new high but we were looking for a run on those by stops and running out the cell stops you can see an example again here with the dollar
96 00:18:27,330 --> 00:18:42,630 index. Here's another example. This is using the dollar swizzy we're going to end store a horizontal line delineating this low here. Okay, we can be a buyer
97 00:18:42,990 --> 00:18:52,500 at that low or just below it and we're going to look for a run below that to be a buyer and we're going to look to pair orders above this high in this high here
98 00:18:53,850 --> 00:19:07,230 and we'll see and potentially look for a run up here so 10145101 30 and 101 25 are our layered by stop areas where we're going to be looking to take our
99 00:19:07,230 --> 00:19:08,940 profits and take something off the table
100 00:19:16,830 --> 00:19:23,370 okay, so here's that move down into that level we identify the low and here is the sweep down below it
101 00:19:29,070 --> 00:19:43,830 price rallies away. Searches up above for the 101 25 look at the reaction after hits this to that in itself is a nice other reaction for a liquidity pool
102 00:19:44,820 --> 00:19:59,610 reaction but we're looking for a stronger move higher in there is your reaction, clearing out the 101 30s and the 101 40 fives back here. It's a good level and
103 00:19:59,610 --> 00:20:13,800 as you can See it. So clear. So that keeps on rolling. So another little run on liquidity pool there. Just see another example. Okay, this is Cable, we talked
104 00:20:13,800 --> 00:20:24,900 about this one also live in session Friday during live market action, said that we would probably sweep below that one more time get below the opening price
105 00:20:24,900 --> 00:20:38,370 sweep to sell stocks below that short term low here. And we talked about price moving up into the 125 to 125 20 level relative to the hourly chart. Price
106 00:20:38,400 --> 00:20:48,450 sweeps down below it runs that pool of liquidity out here. So those stops are now gone to sell stocks are gone. So they accumulated those those positions. And
107 00:20:48,450 --> 00:20:59,250 now they're going to look to offset above 2475. And on the hourly, we talked about this and you can look at the live session recording for December 16 2016
108 00:20:59,250 --> 00:21:14,670 For that bit of business, because we're not going to talk about fair value gaps here today, but price runs up, it hits that level handsomely to run on liquidity
109 00:21:14,670 --> 00:21:25,830 pool here, absorb the sell stops, accumulate them as long position entries. Take something off about here and it off up here relative to the hourly chart. So
110 00:21:25,830 --> 00:21:42,090 there's a few examples of runs on liquidity in the form of a liquidity pool. We're going to build on these ideas also on us supplementary teachings during
111 00:21:42,090 --> 00:21:51,030 the week of Christmas. Because there will not be any live sessions that week because of the holiday I'll be with my family. I will be providing you five
112 00:21:51,030 --> 00:22:03,990 additional pre recorded teachings that go into more detail about these liquidity pool runs, fair value gaps, liquidity voids, order blocks, mitigation blocks,
113 00:22:04,680 --> 00:22:12,630 and reclaimed order blocks. So there's your teachings there's going to be an amplification of what you're getting in the regular eight teachings for December
114 00:22:12,630 --> 00:22:17,340 2016. So until the next one, I wish good luck and good trading